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News Floating-Rate Note Funds: Too Good to Be True?

Every time interest rates are low, investors begin to make mistakes. They tend to engage in activities that they otherwise wouldn’t undertake—such as stretching for yield by taking on credit risk—if rates were at more “normal” levels like 4% or 5%.

With Treasury yields having been at extremely low levels for seven years now, and with money market accounts paying virtually nothing, many investors haven’t been able to resist the siren call of higher yields, especially if they can get them without taking term risk (the risk of rising interest rates). Unfortunately, investors frequently seem to forget that yield and return aren’t synonymous.

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